In our last post we mentioned that Monday is generally a strong day of the week. We didn’t really mean this strong, we were talking more of a normal little bounce of maybe 50 points to correct the six down days in a row for the Dow. So, one day’s trading managed to cover five of those six down days. We are reluctant to say that it was a big win for the bulls, even though the price move was fairly strong. The reason is that the volume was less than what would normally happen on such a big price swing.
Once again, we have been waiting for this day for a very long time—the election will be over on Tuesday. Tonight as we look at the coming trading days, we can only sit back and see what the election brings. There seems to be so much attention focused on this election. The financial media, as we mentioned in our last post, has been picking up the electricity in the stock market due to the election. They seem to think that the market will Now be able to move up much more due to the results of the election. Apparently no one has told them of the theory to “Buy the Rumor and Sell the News.”
This evening there seems to be very little to say about the market because we don’t really know how the market will react to any news and we certainly don’t know what the results of the election will be, whether the gridlock will occur or not. We will say that the market will not all of a sudden be affected by the election, that has mostly been priced in. Those that think the election will affect something in the way of price will be doing their trading too late. We recommend letting the dust settle on the election before making any big decisions on the market.
One last item, the front page of Barron's magazine has the title "Next Stop 13,000?" The subtitle says that a third of the portfolio managers they surveyed said the Dow will surpass 13,000 by mid-2007. So there you go, investment advice for the next six months seems to be buy the Dow here at 12,000. Interesting headline the weekend after the Dow dropped back into the 11,000's. We take the contrarian position (what did you expect?) and say that there are several reasons to be cautious when reading such a headline.
Dow Industrials: 12,105.55
VIX: 11.16 (no change from Friday, curious)